In my humble opinion, the best UK dividend stocks pay an ever-increasing dividend. This means, in good times and in bad times.
Especially the bad times are important because that’s when we need our dividend income the most. “Luckily” we had such a phase at the start of the pandemic in 2020 because it really separated the men from the boys.
As an example, 42 stocks listed on the FTSE 100 index cut their dividend in 2020 / 2021 due to the pandemic. This is really a lot and you definitely don’t want 42% of your dividend growth portfolio to let you down during such stressful times.
On the other hand, there are enough UK dividend stocks that have continued to show loyalty to their shareholders and have either increased or retained their dividends.
Now we’re talking, right?
And we can be really happy with that because you don’t pay dividend withholding tax on UK dividend stocks as a foreigner. Although you are probably obliged to pay the dividend tax in your own country, it just makes things so much easier!
Having said that, let’s share with you the 20 best dividend stocks from the United Kingdom!
These are 20 stocks that haven’t cut their dividend during the great financial recession in 2008/2009 or during the Covid19 pandemic in 2020.
Actually, a few of these UK dividend stocks are worth discussing a bit more and some are even UK’s highest dividend stocks.
They have not been mentioned a lot on this blog and they show signs of high quality and (sometimes) offer an attractive starting dividend yield.
I will discuss those first and then share with you the full list.
This article is part of a series in which I’m analyzing dividend stocks per European country:
– 5 highest yielding German dividend stocks
– 5 highest yielding French dividend stocks
– The 15 best Dutch dividend stocks to buy in 2022
Data for these UK dividend growth stocks in this article might be out-of-date at the time of reading. Please verify this data if it’s part of your decision-making process.
1. BAE Systems plc
|Dividend Yield||2.65%||Dividend Per Share||27p|
|Years Dividend Growth / Remain||24||Sector||Industrials|
|5 Year Average Dividend Growth||4.37%||EPS Payout Ratio||53%|
BAE Systems Plc (LON:BA | ISIN: GB0002634946) is a typical defense contracting company which got founded in 1999 after the acquisition of Marconi Electronic Systems (MES) by British Aerospace. The company specializes in arms, (cyber)security, and aerospace.
Since then it has grown into the largest defense contractor in Europe and 7th in the world by revenues. Some of its biggest competitors are 2 other dividend aristocrats in this industry: Lockheed Martin and Raytheon Technologies.
It seems to be a fruitful industry for producing dividend aristocrats because BAE Systems has increased its dividend since its founding (only 1 flat year in 2003). It has done this with a compounded annual growth rate (CAGR) of 5.12% over the last 23 years.
This is a rate well above the average inflation during that time period. And I see no reason why it can’t continue doing that, even though we are experiencing high inflation right now.
European countries are massively announcing increased spending on military equipment to shield themselves from the threat of a Russian invasion. Hence, I expect them to seek partners they trust the most.
And believe it or not, BAE systems will be one of them because the European mainland is culturally quite closely connected to Great Brittain (yes, also after Brexit 😅)
But jokes aside, BAE Systems also spots a healthy payout ratio of 53%, which gives it ample room to grow in the upcoming years, all else being equal.
Hence, I feel that it is one of the best UK dividend stocks right now which is traded on the FTSE 100 index.
However, I do realize that investing in a stock like BAE Systems might trigger some moral issues. I leave it up to you to judge whether it fits your investment philosophy.
2. CRH Plc
|Dividend Yield||2.64%||Dividend Per Share||1.27p|
|Years Dividend Growth / Remain||39||Sector||Materials|
|5 Year Average Dividend Growth||8.14%||EPS Payout Ratio||29.1%|
CRH Plc (LON:CRH | ISIN:IE0001827041) is one of the leading building materials businesses in the world. They manufacture and supply a diverse range of integrated building materials and products. These can typically be found throughout the built environment, from major public infrastructure projects to commercial buildings and residential homes.
Or without all the gibberish: they produce cement, asphalt, and several other core materials to build big stuff.
Having said that, this is where the FTSE 100 becomes an international index. As an example, did you know that CRH Plc is an Irish company that is headquartered in Dublin? It got founded in 1970 after a merger between Cement Limited (founded in 1930) and Roadstone Limited (founded in 1949).
Since then it has established itself as a true UK dividend aristocrat and it has been paying a growing dividend since at least 1990. Unfortunately, I couldn’t find any data further down in history, but I’ll bet you there is even more.
However, their dividend growth was not always that strong. As an example, it was flat for 7 consecutive years from 2009 to 2015. As you can imagine, the bust of the housing bubble and the great financial recession had a strong impact on the company.
But these are also the times when you can witness true commitment from a management team. The easy way was to cut the dividend, but they decided to continue to provide dividends to their shareholders.
Having said that, I’m not really a fan of these kinds of companies, but their track record is quite strong. Especially with a CAGR of 8% dividend growth in the last 5 years.
But maybe this is a stock that fits in your portfolio?
Note: this is an Irish stock listed on the London Stock Exchange. Hence, a 25% dividend tax applies.
3. DCC Plc
|Dividend Yield||3.71%||Dividend Per Share||179,97p|
|Years Dividend Growth / Remain||31||Sector||Energy|
|5 Year Average Dividend Growth||9,47%||EPS Payout Ratio||54%|
DCC plc (LON:DCC | ISIN:IE0002424939) is a multinational specializing in sales, marketing, and support services. The company provides those services to the Energy, Technology, and Healthcare sectors.
The company got founded in 1976 and grew during those years to 13 billion in annual sales today. And it doesn’t stop there yet, because management is quite bullish on their own future. They are aiming to produce high double-digit EPS returns which is not unlikely with an 11.8% CAGR during the last 28 years.
And management seems to be on track. Just have a look at last year’s performance:
But that’s on the business side of things!
Just have a look at their dividend history below. Isn’t this pure chart-porn?
This is truly an astonishing chart. This represents a 5-year dividend CAGR of 9.47%, a 10-year CAGR of 10.72%, and a 30-year CAGR of 16.02%.
To be honest, I don’t know many stocks with a chowder rule of > 12% at current prices and yields. Definitely not one with a starting yield of 3+% and a forecasted double-digit earnings growth and a safe payout ratio.
Therefore it shouldn’t come as a surprise that I own quite some DCC already, because in my opinion, it’s one of the best UK dividend stocks listed in London.
Trivia fact: DCC Plc is like CRH Plc an Irish-based company that is listed on the FTSE 100 index. Unfortunately, this comes with a 25% dividend withholding tax.
4. Relx Plc
|Dividend Yield||2.17%||Dividend Per Share||54.6p|
|Years Dividend Growth / Remain||24||Sector||Technology|
|5 Year Average Dividend Growth||6.74%||EPS Payout Ratio||64.08%|
Relx Plc (LON:REL | ISIN:GB00B2B0DG97), formerly known as Read Elsevier, is a Dutch-British multinational which is headquartered in London. The company was founded in 1993 after a merger between the Dutch Elsevier and British Read International.
The company is a so-called information and analytics company that provides access to scientific, technical, medical, and legal information. In other words, it’s the main competitor of Wolters Kluwer in an almost oligopoly industry.
And the two are not too far off from each other. As a comparison, Relx Plc earned 8.5 Bln pounds in revenue over 2022 and Wolters Kluwer 5.4 Bln euros. On top of that, they are both able to generate an operating margin of 25%.
In its essence, this is really a boring business to operate in. It’s a slow-compounding industry, but as some of you know, I love such kinds of industries.
They often provide very predictable and stable cash flows and this is exactly what we need for ever-increasing dividend growth!
That’s where Relx Plc shines because it has been able to grow its dividends for 24 consecutive years after a 33% dividend cut in 1998. Especially in the last ten years when it grew its dividends with an 8.56% CAGR.
The EPS payout ratio is still OK at 64%, but I do prefer to see it a bit lower for such type of company. The main downside of Relx has been its share price over the last few years.
Like Wolters Kluwer, there seem to be limited chances to initiate a position in Relx Plc. In my opinion, their earnings growth rate doesn’t justify a multiple of ~30. This is also the reason why the dividend yield is relatively low at 2.07%.
Who knows, maybe we will get an opportunity to look into Relx later this year again?
Trivia fact: the Elsevier part of the company dates all the way back to 1580 when Dutch bookbinder Louis Elzevier settles down in Leiden. That’s when the family started to expand its business by publishing some of the best academic research from the 17th century. The rest is history!
5. Smith & Nephew plc
|Dividend Yield||2.43%||Dividend Per Share||31.31p / 37.5 cents|
|Years Dividend Growth / Remain||22||Sector||Healthcare|
|5 Year Average Dividend Growth||1,39%||EPS Payout Ratio||46%|
Smith & Nephew Plc (LON:SN | ISIN:GB0009223206 ) is a medical device company that produced orthopedic devices, sports medicine, arthroscopic technologies, and wound-care solutions. The latter makes it a competitor of European Dividend Aristocrat Coloplast from Denmark.
What’s interesting is that about half of their revenue is generated in the United States. Hence, a strengthened US dollar should give them some windfalls in the upcoming earnings report.
It could use a few tailwinds because its free cash flow was poor over the last three years. The pandemic was a clear headwind for the company and now it struggles to grow sales in an inflationary environment. That’s the reason why their dividend remained flat over the last 3 years.
And this seems to be the trend when looking at their dividend history. A few years of mediocre growth with sudden large dividend hikes.
To be honest, I appreciate that they didn’t cut the dividend and rather retained it. They have been struggling with their earnings over the last few years and generated a low Return on Invested Capital. I expect them to resume hiking their dividend as soon as earnings get back to growth.
Other than that, I like this business a lot. There are a lot of tailwinds for the industry that Smith & Nephews operates in. Especially emerging markets should be a clear growth driver in the years to come.
UK best dividend stocks
I think it’s time now to share the full list of the 20 best UK dividend stocks with you.
These companies haven’t cut their dividend during the Great Financial Recession and the Pandemic. Actually, some of these are also members of the exclusive Noble 30, 30 European Dividend Aristocrats.
Hence, this shows strong resilience in their business models and it demonstrates management that is committed to growing their dividends.
Some of these names you will recognize as they are very popular in the dividend growth investment community. I have also discussed several of these on this blog or on my YouTube channel. That’s why I will provide you with some links for further reading in case you are curious:
- Unilever: Stock Analysis | GSK bid
- British American Tobacco: Stock Analysis | Stock Analysis #2
- Sage Group: Stock Analysis
There you have it, these are in my opinion the 20 best UK dividend stocks from a dividend growth perspective that are trading on the FTSE 100.
However, there are some more jewels in the UK available to dividend investors. That’s why I would like to share with you 3 additional bonus stocks.
Bonus: Rio Tinto Plc
|Dividend Yield||8.21%||Dividend Per Share||406.98p|
|Years Dividend Growth / Remain||0||Sector||Materials|
|5 Year Average Dividend Growth||13.9%||EPS Payout Ratio||60%|
Rio Tinto Plc (LON:RIO | ISIN:GB0007188757) is a British-Australian is the world’s second-largest metals and mining corporation (behind BHP). Most of their income is generated via the sale of iron ore, aluminum, and copper & diamonds.
And these commodities are booming nowadays due to increased demand (emerging markets / EV) and on the other side constraints in supply (covid).
This has been a once-in-a-decade tailwind for Rio Tinto resulting in massive cash flows. And that’s where the fun starts because Rio Tinto is very shareholder friendly.
As an example, the company paid ~1.8 GBP in special dividends on top of a ~5.8 GBP in normal dividends in 2021.
However, we have seen that such high dividends are not sustainable, because the nature of their business is very cyclical.
On the other hand, I’m of the opinion that we will continue to be rewarded handsomely with above-average dividend yields over the next decade. This allows me to reinvest those dividends into other dividend growth stocks to push the snowball a bit faster.
Hence, this is not a dividend growth stock, but a typical high-yield dividend stock.
It’s a subtle difference, but in my opinion very important to remember this when owning Rio Tinto Plc.
Bonus: Chesnara Plc
|Dividend Yield||8.48%||Dividend Per Share||23.28p|
|Years Dividend Growth / Remain||18||Sector||Financials|
|5 Year Average Dividend Growth||3.01%||EPS Payout Ratio||–*|
Chesnara Plc (LON:CSN | ISIN:GB00B00FPT80) is a life insurance and pensions consolidator with a presence in the UK, the Netherlands, and Sweden.
They are mostly owning closed-book policies which means that over time they will need to replace them to maintain their cash flows. It’s effectively a so-called “cigar-butt” business looking for some last puffs when others don’t need them anymore.
However, outside the UK they started to sell some open-book policies which could provide them with another leg of growth.
I truly think that there doesn’t exist a more boring business than Chesnara. Everyone in their office is probably wearing grey suits, either light grey or dark-grey if there’s someone who wants to spice things up. At least in my imagination 😅
But as many of you know, I truly love boring businesses. Especially if they provide us with ever-increasing dividends!
And that’s exactly what Chesnara has been doing for the last 18 years
As you can imagine, I personally own some shares in Chesnara Plc and you can read my stock analysis here.
Some caution is worth sharing because it’s a small-cap stock with limited liquidity. Hence, prices might show more volatility under severe market stress.
On the other hand, it’s another example of a high yield UK dividend stock.
Bonus: Legal & General Group Plc
|Dividend Yield||7.29%||Dividend Per Share||17.8p|
|Years Dividend Growth / Remain||12||Sector||Financials|
|5 Year Average Dividend Growth||5.15%||EPS Payout Ratio||54%|
Legal & General Group Plc (LON:LGEN | ISIN:GB0005603997) is a British financial service and asset management company. It provides investment management services, lifetime mortgages, pensions, annuities, and life assurance.
It’s an old company with a rich history that exist already for almost 2 centuries. Besides that, it is also known within the dividend growth investing community as a popular high-yield dividend growth stock.
The community is probably right here because management is committed to a growing dividend since 2016. This was not the same case before.
Or maybe it was just the Great Financial Recession in 2008 and 2009 that forced them to cut their dividend? I mean, they were in the middle of the blast zone as a financial institution. Hence, it should come as no surprise that their earnings and cash flows were under severe stress.
But the good news is that the company has been growing its dividends 4-fold since then. Not bad, right?
The company also looks good from a fundamental perspective. It has a 236% solvency ratio and last year it generated a 20.7% return on equity. These are in my opinion the two most important metrics when investing in Legal & General Group plc.
Hence, if you are looking for another high-yield dividend growth stock, then this might be it.
The dividend growth stocks listed on the FTSE 100 are in my opinion not the fanciest companies. Many of these represent old and out-of-fashion industries, which makes it a bit harder to be bullish on them.
However, I don’t need 20 dividend growth stocks from the UK. 3 or 4 are more than enough for me and that’s why I truly enjoy reviewing these European indexes.
There are always a few dividend growth stocks that trigger my attention and my real discovery was DCC Plc. And good news: I own already a significant position right now.
Having said that, I truly hope that you found this overview interesting 🤞
It’s not easy to compile, because unfortunately getting access to reliable European dividend data is nearly impossible.
But I’m happy that I finally got to this point because it took me about 3 months to manually browse through 100 stocks and their investor relations websites.
Of course, not non-stop. I still have some obligations at home 😅
Last but not least, if you are aware of some other British dividend growth stocks that deserve a better look then please let me know in the comment section below 👇.
In the end, it would be awesome to maintain this as a nice article about the best UK dividend stocks.
European Dividend Growth Investor
- 3-May-2023: I removed Scottish Mortgage Investment Trust PLC (LON:SMT) after it merged with the JP Morgan Fund and I removed GSK (LON:GSK), because it cut its dividend after its recent spin-off. Schroders Plc and Dechra Pharmaceuticals Plc has been added instead.
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.